One thing all growing companies need is access to growth capital. Even though capital is not as important as other fundamental growth elements, such as a solid business model, superior customer offering, and a strong team, it often dominates the attention of entrepreneurial CEOs. We have an insatiable desire to grow, and access to capital can help us achieve our growth goals-except when it's in short supply.

We received some quality responses from entrepreneurial CEOs to our recent articles about working with private equity investors (See: "What You Need to Know About Private Equity" and "Build a Winning Private Equity Partnership"). One note from Jeff Gordy, CEO of Z2 Systems, stood out:

"We are a growing company and just turned down private equity and venture capital money. It just seems like they are trying to take ownership right when a company starts to do really well. For an owner who believes in his company, this seems like selling out. Especially if you enjoy being the true leader of the company and like setting longer term goals."

Jeff added that he and his partner raised less than $120,000 in funding from friends and family as they built the business over the past eight years. When they reached out for funding in 2006, they didn't get a great response and decided to continue to bootstrap the company's growth. He shared his frustration with investor conversations:

"Most of these possible equity partners seem to only be looking five years down the road and are mostly interested in profiting from what we built as it stands. For a true company leader and entrepreneur with a vision, this seems like a big sell-out to me. The moment you accept outside capital it seems that you are no longer the true leader of your company. You have to start answering to your investors who may have very different goals. I was lucky enough to have some friends in the financing industry that looked at our numbers and told us that we were being undervalued by many investors, and did not even need the money."

There are two very important lessons that Jeff learned through this process. All entrepreneurial CEOs can take these lessons to heart:

1. When you take investor capital, you are building a new business partnership.

The key word is "partnership," but unfortunately, the key word many CEOs think of instead is "money." This is a huge mistake. If you don't get value and profit from the "partnership" it won't be successful. Jeff realized that his goals and objectives were vastly different than the investors he talked with. No partnership will work if the parties are misaligned on the goals and objectives of the partnership.

2. Don't take money if you don't need it.

We are flabbergasted by entrepreneurs who see funding as a primary goal rather than a means to an end. Never forget that when you take capital for equity, you are effectively SELLING your company, or at least a portion of it. If you wouldn't sell at that price, then don't. Jeff realized he didn't absolutely need the money, and since he valued his company more than external investors did, taking capital would mean selling his firm at a discount.

There's no question that access to growth capital is vital to a growing company. It's important to build the right partnership with your investors and take money only when it's necessary and structured in a way that substantially increases your ability to grow the value of the business.

We'd appreciate hearing more of your stories on seeking funding--both the successes and the frustrations.  Send us an email at

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